Saudi Arabia would allow foreigners to buy shares listed on its stock market through licensed intermediaries, a major step toward opening the largest Arab bourse to foreign capital, the Kingdom's stock market regulator said on Wednesday. The stock market, Tadawul, has been the least open among Gulf Arab bourses to foreign investors, up to now giving foreigners access to stocks only through select funds. As part of plans to diversify the market's investor base, the Capital Markets Authority (CMA) said foreign investors are now entitled to buy shares through certain licensed Saudi investors, who would be the legal owners of the shares. Under the measure, potential foreign investors would be entitled to returns related to their share purchases and must take on all of the economic exposure, the CMA said in a statement on the bourse website. The CMA has allowed authorized persons to enter into swap agreements with non-resident foreign investors whether institutions or individuals, to transfer the economic benefits of the Saudi companies' shares listed on Tadawul while the authorized persons retain the legal ownership of the shares in accordance with conditions and requirements set forth by the authority. The move was part of “continued efforts of the authority to develop the financial market”, the CMA added, without saying when the decision would be take effect. The announcement comes less than a week after the exchange began naming investors with stakes of 5 percent or more to boost transparency, a move that has encouraged an eight-day rally. The benchmark index TASI, still down more than 23 percent this year, is dominated by day traders and has been trying to improve transparency and gain more institutional investors since a market crash in 2006. “This is one step away from opening up the market completely to foreign investors,” said John Sfakianakis, chief economist at SABB bank, HSBC's Saudi affiliate. “This is a very sizeable step. A client in London, Paris or New York has a way to get invested in the local market through licensed stock brokers.” Foreigners would be responsible for fully financing the share purchases through the intermediary and taking on any credit exposure, he said. The market regulator said last December the kingdom would gradually begin allowing foreign money in through licensed firms. That month, HSBC said it was launching two indexes and associate funds to give global investors exposure to firms including Saudi Basic Industries Corp 2010.SE, the world's biggest chemicals firm by market value. Morgan Stanley will be allowed to set up a fund to invest in Saudi equities, the regulator said this month. The market regulator said last December the Kingdom would gradually begin allowing foreign money in through licensed firms. That month, HSBC said it was launching two indexes and associate funds to give global investors exposure to firms including Saudi Basic Industries Corp, the world's biggest chemicals firm by market value. Morgan Stanley will be allowed to set up a fund to invest in Saudi equities, the regulator said this month. Certain stocks in Saudi Arabia are trading at cheap multiples, some traders said. SABIC, the largest stock in the Arab world, rose 1.63 percent to SR125 ($33.33) on Wednesday, a 68 percent discount to HSBC's target price of SR210. “There are some companies that are very very well-priced. These could see a rally,” Sfakianakis said. – With input from agencies __
